While turf battles between regulators make for nice media headlines, in the Sahara case, a barely-noticed fact is the powerful affidavit from the ministry of corporate affairs (MCA) which helped SEBI win its case in the Supreme Court
One of the biggest legal victories for the Securities & Exchange Board of India (SEBI) in recent times is the Supreme Court judgement ordering two Sahara companies (Sahara India Real Estate Corporation and Sahara Housing Investment Corporation) asking them to refund nearly Rs24,000 crore (Rs17,400 crore plus 15% interest) in three months.
What has however not received as much attention is the fact that the apex court’s landmark judgement clarifying several jurisdictional and legal issues came about only because of the strong and unstinted support from the ministry of corporate affairs (MCA).
In fact, Senior Counsel Arvind Datar, who won this giant battle for the regulator calls the affidavit by Sanjay Shorey, joint director in the ministry, the turning point in the litigation because Sahara could not play one regulator against the other. The MCA was the second respondent in the case and the Saharas had tried to wiggle out of the SEBI clearance requirement by having the renowned Fali Nariman claim on their behalf that they ‘hybrid’ Optionally Fully Convertible Debentures (OFCDs) did not require clearance or listing on stock exchanges.
But the MCA affidavit was emphatic on a number of key issues. Mr Shorey, speaking for the ministry, categorically stated that SEBI and the ministry “have concurrent jurisdiction in the Saharas case” and that the Saharas’ appeal to the Supreme Court was “misconceived, untenable and completely devoid of merits”. He said that SEBI and the MCA “co-ordinate and work in tandem regulating the securities market and protects the interests of the investors. While doing so, the paramount duty and obligation of SEBI and MCA is to protect the interest of investors and legal technicalities should not impede SEBI and MCA exercising their regulatory powers and duties”.
The MCA further supported SEBI’s intervention in matters relating to issue of securities by unlisted public companies “varies on a case-by-case basis” depending on “particular facts and circumstances of each case”. In doing so, it negated Saharas argument that the regulator had failed to act in the case of two other unlisted companies that had issued debentures. MCA also backed SEBI on its stand that the market regulator had jurisdiction since the OFCDs were offered to more than 50 persons in the guise of a “private placement”.
What is more important about Mr Shorey’s affidavit is that it corrected an extrmeely dubious action by the Registrar of Companies (ROC), Kanpur, to support the Saharas stand before the Allahabad High Court. The ROC Kanpur, based in the backyard of the Saharas headquarters (at Lucknow) had apparently filed a shady affidavit that was aimed at backing the claim of the corporate that they had acted in accordance with the law by having filed their debenture plans with the MCA.
Mr Shorey, however, decimated the actions of the ROC Kanpur by saying in this affidavit that “a solitary and independent act of an officer, namely the Registrar of Companies to accept the filing of a Prospectus with or without complete knowledge of facts and the intentions of the Appellant (Saharas), to circumvent the statutory provisions and thus attempt to create an impediment to the Statutory Regulators to investigate cannot whittle down the powers of the Regulator i.e. SEBI to embark upon an inquiry and take such steps to protect the investing public. Such an act is a deliberate attempt and design by the Appellant to get sanction in respect of an act knowingly committed in breach of statutory provisions.”
This hard hitting retraction of the ROC’s action and an open statement that he had acted way beyond his authority was the clear turning point in the case. But it was a big boost to SEBI to have the MCA say that Sahara’s intetion was “not bonafide” and that the Securities Appellate Tribunal (SAT) was correct in its observation that ROC, Kanpur had registered the RHP (Red Herring Prospectus) “with undue haste and in dereliction of his duty.” The MCA has ordered an inquiry against ROC, Kanpur.
Further, the MCA affidavit rejected Mr Nariman’s argument about ‘hybrid’ debentures and the regulatory clearances applicable to them. Mr Shorey said, “I deny that section 67 of the Companies Act, 1956, does not apply to ‘hybrid’ securities” (which combine the characteristics of shares and debentures) and went on to explain how exactly it was covered under the Act.
Following the landmark order by the Supreme Court, the Saharas will have to refund over Rs17,656 crore that is claimed to have been collected from over two crore investors along with interest within three months. More importantly, the money will be deposited with SEBI with clear identification of the subscribers and the entire process will be overseen by a retired judge.
It remains to be seen whether Sahara springs new surprises in the process of complying with the apex order. For starters, it has already lodged a letter with SEBI claiming that tens of thousand investors have beseiged it for refunds. At least three persons based in Lucknow have independently verifed whether people are crowding Sahara India’s head office for refunds and have denied the claim. Meanwhile, the question of whether “Sahara Credit Cooperative Society” will continue to raise funds just as smoothly remains to be seen.
Instead of delaying decisions on matters such as development of the known oil and gas finds, can the government give a directive that, on such high cost import, there should be no need to obtain additional approvals
The oil industry is at the cross roads unable to take the next step, plagued by government delays in a rudderless policy followed by the government. Even where certain rules are already in place, the main players are advised to wait, follow and seek clearances!
Take the case of Reliance Industries (RIL), where the production of gas from the D-6 block has come down to 30 million metric standard cubic metres per day (mmscmd) from 80 mmscmd projected? It must be noted, earlier, the Director General of Hydrocarbons (DGGH) had rejected the commerciality of three gas finds of D-25-30-31 but with the delayed approval, RIL, BP and Niko will be able to go ahead with their proposed investment of some $1 billion in their fields. It will be a few months more before we would come to know the actual potential.
In the case of ONGC, most of its production now comes from old fields and that of Bombay High offshore. But for its recent discovery in the Krishna Godavari (KG) block, which is the deepest gas find in the country, it has, fortunately found a Japanese partner, who has not been identified yet, publicly. Though ONGC has the necessary approvals from the petroleum ministry, it is still awaiting certain clearances from the ministry of defence. The DGH has put an estimate of 2.315 trillion cubic feet of gas, which differs from a higher estimate made by ONGC.
Based on our past experience, it is better to underestimate the potential and find a larger capacity later, than vice versa, as it apparently happened in the case of RIL, in terms of actual output!
As for Cairn India, which has been taken over by Vedanta Resources, chairman Anil Agarwal had to resort to seeking prime minister, Dr Manmohan Singh’s intervention to raise its output from the current level of 175,000 barrels per day (bpd) to 300,000 bpd or about 15 million tonnes per annum, amounting to 35% of India’s crude oil output. Currently, the 175,000 bpd saves Rs11,000 crore which would have been otherwise spent in importing foreign crude from other sources.
This assistance from the PM was sought some two months ago. No news yet!
Although the Production Sharing Contract has provisions that allow Cairn to carry on exploration in its development area, it has been asked to obtain certain approvals, thus delaying the work at site. There are some 25 oil and gas finds in the area. Two months ago, Mr Agarwal took up the issue with the prime minister for expeditious assistance, but presumably, the issue of Coalgate has become a stumbling block!
In the meantime, Rahul Dhir, the MD and CEO of Cairn India announced his intention to leave by end of August, and has been replaced by P Elango as its interim CEO.
In one of his meets with the press, Mr Dhir had announced that he was looking forward to rewarding the shareholders with a special dividend, as no dividend had been given till that time. However, with his exit, it is now uncertain when the dividend will actually be given to the patient shareholders?
Assuming a positive response is received from the petroleum ministry, for Cairn to proceed with the work and secure production capacity of 300,000 bpd, it would still need concurrence from ONGC and generate funds for further investments. One wonders if there is a rights issue, or, Mr Agarwal will start with a bang and issue a bonus.
Once this development begins it needs to either export the excess crude over the 175,000 bpd or make it available to existing buyers like Reliance, Essar or IOC? It won’t be a surprise, if, in the long run, Anil Agarwal decides that a Cairn Refinery would just serve as well?
As for the government, instead of delaying decisions on such matters as development of the known oil and gas finds, they ought to give an open directive that, on such high cost import items like crude, gas, etc, there should be no need to obtain additional approvals.
Besides, the government must wake up and realize that the shortfall, due to Reliance, must be made up by others in the field; and time is the essence of contract with the people at large.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US. He can be contacted at [email protected].)
But the decline may be shallow
The market was range-bound throughout the entire session and settled with minor gains as investors adopted a “wait-and-watch” attitude ahead of the release of domestic economic numbers. We had mentioned on Friday that unless the Nifty breaks the previous day’s low, the trend is up for now. We may now see the uptrend pause. The index managed a higher high and a higher low today and settled with a marginal gain. The National Stock Exchange (NSE) saw a volume of 46.75 crore shares and advance decline ratio of 784:653.
The market opened listless in the absence of any local triggers and having factored in the ECB bonds-buying programme, which was announced last week. Markets in Asia were trading mostly higher despite a report showing slower growth in Chinese exports last month.
Back home, the Nifty opened three points higher at 5,362 and the Sensex resumed trade at 17,781, 31 points higher than its previous close. The market was range-bound amid volatile trade and hit its intraday high in initial trade itself. At this point the Nifty touched 5,375 and the Sensex rose to 17,811.
The benchmarks hovered on both sides of their previous close in subsequent trade. With major international events behind us, the focus will now be on the domestic economic indicators like industrial output numbers and headline inflation figures, which will be released later this week.
Meanwhile, with domestic car sales posting the biggest drop in 10 months in August by 18.56%, industry body Society of Indian Automobile Manufacturers today said its forecast of registering a growth of 9%-11% in this fiscal is unlikely to be met. While the August car sales stood at 1,18,142 units in August 2012 compared to 1,45,066 units in the same month in 2011, for the April-August period this fiscal it stood at 7,52,440 units as against 7,45,991 units in the same period last year, up 0.86%.
At the time of writing, two of the three the key European indices were positive and the US stock futures were in the negative, indicating a lower opening for US stocks.
The market continued to trade sideways in the noon session as the key European indices witnessed a soft opening, after notching over 3% gains last week following the ECB’s bond-buying initiative.
The market dipped to its lows at around 1.30pm with the Nifty falling to 5,349 and the Sensex went back to 17,728. The indices lacked energy and settled flat as investors await the release of key economic indicators later this week, which may have a bearing on the RBI’s policy review, slated for 17th September.
The Nifty settled five points up at 5,363 and the Sensex added 17 points to close the session at 17,767.
It was the day of the broader indices, which outperformed the Sensex today. The BSE Mid-cap index rose 0.28% and the BSE Small-cap index gained 0.70%.
The top sectoral gainers were BSE Consumer Durables (up 0.99%); BSE Healthcare (up 0.95%); BSE Metal (up 0.71%); BSE Auto (up 0.49%) and BSE TECk (up 0.19%). The key losers were BSE Realty (down 0.78%); BSE Bankex (down 0.77%); BSE Power (down 0.44%); BSE Fast Moving Consumer Goods (down 0.23%) and BSE Capital Goods (down 0.05%).
Fifteen of the 30 stocks on the Sensex closed higher, they were led by Sun Pharma (up 2.63%); Bharti Airtel (up 2.32%); Coal India (up 1.76%); Tata Steel (up 1.63%) and Tata Motors (up 1.28%). The major index losers were Jindal Steel (down 2.16%); BHEL (down 2.15%); State Bank of India (down 1.80%); Tata Power (down 1.19%) and Wipro (down 1.17%).
The top two A Group gainers on the BSE were—Adani Enterprises (up 9.41%) and Manappuram Finance (up 5.39%),
The top two A Group losers on the BSE were—Reliance Communications (down 3.46%) and HDIL (down 3.27%).
The top two B Group gainers on the BSE were—Panacea Biotec (up 20%) and ARSS Infraprojects (up 20%).
The top two B Group losers on the BSE were—Arunjyoti Enterprises (down 16.61%) and Lloyds Finance (down 16.46%).
Out of the 50 stocks listed on the Nifty, 23 stocks settled in the positive. The top gainers were Sun Pharma (up 2.77%); Bharti Airtel (up 2.20%); Bajaj Auto, Coal India (up 1.71% each) and Tata Steel (up 1.27%). Axis Bank (down 2.89%); BHEL (down 2.32%); SBI (down 2.13%); Jindal Steel (down 1.86%) and DLF (down 1.47%) settled at the bottom of the index).
Markets across Asia closed mixed as details of slowing growth from China and Japan renewed hopes of fresh initiatives by their respective policy makers to spur growth. This apart, market participants are now focussed on the two-day Federal Open Market Committee meeting on 12th and 13th September.
The Shanghai Composite gained 0.34%; the Hang Seng rose 0.13%; the Jakarta Composite advanced 0.41% and the Taiwan Weighted surged 0.78%. On the other hand, the KLSE Composite lost 0.22%; the Nikkei 225dipped 0.03%; the Straits Times fell 0.10% and the Seoul Composite declined 0.25%.
Foreign institutional investors (FIIs) were net buyers of stocks totalling Rs19.39 crore in the brief trading session on Saturday. On the other hand, domestic institutional investors (DIIs) were sellers of stocks amounting to Rs7.54 crore. On Friday both FIIs and DIIs were net buyers of stocks—FIIs pumped in Rs502.18 crore and DIIs invested Rs218.29 crore.
Pharma major Venus Remedies today said it has secured its first patent from Canada for its antibiotic drug ‘Vancoplus’ and will roll out the product in that country in the next two years. The drug will provide treatment for typhoid, pneumonia, urinary tract infection, skin infection and other diseases. The stock jumped 4.63% to close at Rs296 on the NSE.
Adani Power today said it expects to earn as much as Rs 600 crore from trading of carbon credits from two of its units at the 4,620 MW Mundra project in Gujarat. Mundra plant’s phase III “becomes the world's first coal-fired thermal project to receive carbon credits from the United Nations Framework Convention on Climate Change (UNFCCC)”, the company said. The stock closed 3.05% higher at Rs42.30 on the NSE.
Future Group firm Pantaloon Retail (India) today said it will merge its wholly-owned subsidiary Future Value Retail, which runs Big Bazaar and Food Bazaar stores, with itself. Future Value Retail operates 148 Big Bazaar and 169 Food Bazaar stores, among other formats, in over 70 cities across the country. Pantaloon Retail closed at Rs148.40 on the NSE, up 3.34% over its previous close.